At the beginning of the quarter,your company borrows $20,000 using a four-year promissory note that states an annual interest rate of 8% plus principal repayments of $5,000 each year.Interest is paid at the end of the second and fourth quarter,whereas principal payments are due at the end of each year.How does this new promissory note affect the amounts of current and non-current liabilities reported on the balance sheet at the end of the first quarter?
A)Current liabilities increase $400; Non-current liabilities increase $20,000
B)Current liabilities increase $1,600; Non-current liabilities increase $20,000
C)Current liabilities increase $5,400; Non-current liabilities increase $20,000
D)Current liabilities increase $5,400; Non-current liabilities increase $15,000

Question

Quizplus · Accepted Answer

At the end of the first quarter,the accrued interest payable is $400 ($20,000 * .08 * 3/12),$5,000 of the principal is a current liability since it is owed within one year,and the remaining $15,000 is a long-term liability.

At the Beginning of the Quarter,your Company Borrows $20,000 Using